The Indian Economy Blog

October 29, 2005

The Long And Winding Road

First it was the Wall Street Journal. Then it was Yale Global , followed by the Economist.

And now, it’s Fortune’s turn to tell us that India isn’t an economic juggernaut — and isn’t likely to become one, in the near future.

Clay Chandler laments India’s

almost willful disregard for the fundamentals of developmental economics. China’s economic miracle was achieved by getting the basics right—building good roads, educating women and young girls, loosening labor restrictions, and opening the economy to competition and foreign trade.

India, by contrast, is the global economy’s idiot savant. It excels at the impossible, turning out hundreds of thousands of brilliant engineers a year. Its software houses manage complex data across thousands of miles of undersea cable for the world’s most sophisticated clients. India has world-class business leaders and, unlike China, solvent banks. And yet India flubs the obvious stuff. The national roadway network is a shambles and the power grid even worse. Nearly a third of India’s population—and more than half its women—can’t read or write. India has moved grudgingly to lower tariffs and balked at turning money-losing state-owned enterprises over to the private sector. Red tape and corruption discourage foreign investment, as do restrictions on how firms deploy workers.

[..]

Of all India’s failures, lousy infrastructure may be the most puzzling. The nation’s highway network stretches just 124,000 miles, compared with 870,000 miles in China. Most of the roads are simple two-lane affairs, maintained badly if at all.
[..]

Morgan Stanley estimates that India is spending only about $2.5 billion a year building roads, while China is spending $25 billion a year. For goods sent by rail, freight costs are twice the average of other developed countries’ and three times those in China. At India’s ports, shipments often languish for days waiting for customs clearance and loading berths; goods typically take six to 12 weeks to reach the U.S., compared with two to three weeks for goods from China. Electric power in India costs twice as much as in China: Public utilities sock it to industrial producers to make up for the power they give away to farmers and the urban poor. The national grid is so bad that as much as 40% of the electricity generated is simply lost in transmission.

The result is that firms in India pay far more than rivals in China to produce, distribute, and export their products. ..

In my opinion, India’s disregard for the basics goes beyond the government. Even private sector charities & religious endowments are more likely to donate to some spiffing state-of-the-art medical facility rather than a primary healthcare initiative.

Q) What’s behind India’s disregard of the basics? And how do we channel private charities in the right direction?

9 Comments »

  1. Whatever the naysayers may say, I’m betting long on India. :-)

    Comment by Niraj — October 29, 2005 @ 5:04 pm

  2. I will hold a short position for now ;-)

    after seeing this

    http://www.ccsindia.org/gdas/toi.htm#sep11_2005

    Comment by Navin — October 29, 2005 @ 6:02 pm

  3. What is basic?primary education or higher education?literacy or adult literacy?electrification of tiny villages in remote areas or electricity at cheaper rate?network of highways or the country roads connecting villages?Coming to the second part of your question private charities,with all their resources,can manage and run state of the art medical facilities better than the government.Government,at all levels,should initiate primary healthcare

    Comment by ak — October 29, 2005 @ 11:49 pm

  4. Coming to the second part of your question private charities,with all their resources,can manage and run state of the art medical facilities better than the government.

    True! But don’t forget that charities can establish a hundred smaller clinics, as opposed to one big fat government ‘state of the art’ waste-of-taxpayers-money.

    It’s always a 80-20 matter. Do we need specialized facilities to cater to 20% of needs, while ignoring 80% of simple health needs?

    Again, please keep in mind, that more than 50% of public spending doesn’t reach it’s intended target.

    Comment by Abhi — October 30, 2005 @ 1:40 am

  5. Why do you want to “channel” private charities? You are begining to sound like the very policy makers you often deride. I thought market economics was all about money flowing to where the rewards were the highest. So perhaps, there is a reason that private charities park their funds where they do, if they do. (I don’t know the numbers at all).

    Comment by Renuka Sane — October 30, 2005 @ 3:21 am

  6. I could not agree more with this assessment. India just does not invest a large enough proportion of its GDP. I am sure that electricity is similarly misused in China but it makes so much more of it. The question is how China manages to save 50% of its GDP, invest 45% and still have money left over to run a current account surplus. Dani Rodrick and Arvind Subramaniam of the IMF have argued that the Indian savings rate will rise in the years to come due to demographic factors.

    Comment by Amitabh — October 30, 2005 @ 8:20 am

  7. Renuka

    Your point is well-taken. I think “channeling” was not the approporate choice of word.

    Caveat: I’m not done extensive research on charities in India — whatever I know is based on detached observation of my “community”, the Jains…

    My take: Private charities aren’t that well-informed ie,

    a) many of them aren’t aware of the social returns on investment in primary education and health-care

    b) the benefits to consumers from basic investments accrue over a much longer period, unlike a high-tech hospital or a college

    c) the returns are more prone to leakages, and are somewhat more abstract (largely because of b)

    So, what we should be doing is raise awareness about the ROI on primary education/ health-care among these charities

    Comment by Prashant Kothari — October 30, 2005 @ 11:51 am

  8. [...] #8217;s (or China’s) recent accomplishments. It’s just that India certainly ain’t no economic (or knowledge) superpower — not by a long shot. So, [...]

    Pingback by The Indian Economy Blog » Blog Archive » Don’t Try Kicking Sand In America’s Face… — December 19, 2005 @ 6:33 pm

  9. Leave India alone… Let the so-called Intellectuals keep guessing about India.. When it comes to India time stops? It takes a different meaning… The Western people were always wrong and would always be about India… They have big money and they want fast access to Indian market… So they want good distribution systems very fast.. But guess what they are not going to have it.. At least in the near future.. Bad infrastructure is good for Indian economy… It gives chance for Indian companies to establish and carve a chunk out of the market.. If you are frustrated with India then leave her alone, go and sell your products somewhere else and stop lecturing Indians how they should progress.. Bad infrastructure coupled by progress in Information technology is the best combination one can ask for… We don’t want the Walmarts to sell our own products to ourselves.. Look at what’s happening with the TV industry.. Sony Entertainment India is making all the money. Soon they will set up their Movie Studios and sell our own movies to ourselves… Why can’t Bollywood movie making families don’t make a distribution studio I still don’t understand.. If we improve our infrastructure fast without improving our democracy then there would one day where the Americans would sell us our own Samosa like they have done to the Italian Pizza or the Mexican Taco… The World should accept whatever the pace at which Indian economy is growing and stop dictating us as a colony….

    Comment by KK — December 23, 2005 @ 2:07 am

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